Special Finance Glossary


Special Financing Glossary – Car Industry Terms Made Easy!

The purpose of the Special Finance Glossary is to explain complicated terms that are commonly found when dealing with bad credit auto financing. If you’ve been confused by strange financing words and car industry jargon but were afraid to ask, you’ve come to the right place! We break down all the complicated (and not-so-complicated) auto financing terms with simple, easy to understand definitions.


Auto Equity Loan: You may have heard this term at a finance company, pawn shop, or short-term loan business. This type of loan typically uses the equity in your vehicle in exchange for your vehicle’s title. A borrower will be loaned cash against the title. Upon repaying the lender, your title is returned.


Bad Credit: Credit that is below average. Sometimes referred to poor credit or credit with low scores, bad credit happens when borrowers pay credit debts after the established due date. Slow or late payments can result in eventual repossession of a vehicle, foreclosure on a home, or financial bankruptcy. Having bad credit does not necessarily disqualify a borrower from securing an auto loan, however.

Balloon Payment:  Uncommon with traditional auto financing, these loans feature small monthly payments but require a very large payment at the end of the loan. Though some people find these types of loans tempting, it can often be difficult to make the large, final payment. This can result in a worse financial situation and should be avoided.

Bankruptcy: Legal discharge or restructuring of a borrower’s debts; Chapter 7 bankruptcy denotes a total wiping of debts with no repayment due; Chapter 13 bankruptcy denotes a structured court-mandated repayment of debts at a reduced rate. While bankruptcies are considered serious by many lenders, achieving special financing with a bankruptcy is possible and does not necessarily disqualify a borrower from obtaining an auto loan.

Black Book Value: A rival company to the better known Kelley Blue Book, Black Book offers information about a vehicle’s value depending on whether it’s sold through a private party or traded into a dealership. Like Kelley Blue Book, Black Book typically calculates the value of a car, truck, SUV, van, or motorcycle based upon data that is reported from wholesale vehicle auctions.

Blue Book Value: Founded in 1926 by car dealer Les Kelley, Blue Book specializes in estimating a vehicle’s value by analyzing a variety of wholesale auction data and pricing information obtained from dealerships. Like Black Book, KBB offers estimates on the value of vehicles purchased through private parties or traded into dealerships. 


Certificate of Title: A document that proves ownership of a specific vehicle, typically provided by the Department of Motor Vehicles (DMV).

Co-signer:  Someone who assumes equal responsibility for an auto loan. Also known as a co-borrower, a co-signer is used when a borrower cannot obtain special financing on the strength of their own credit or income. In order to be considered, co-signers typically must be able to qualify for the auto loan on their own.

 Credit: The process of purchasing items through the promise of small payments, paid back over time with interest.

 Credit Bureau: A company that obtains credit histories and publishes the information in credit reports to individuals and/or businesses. The three main credit bureaus are: TransUnion, Equifax, and Experian.

 Credit History: A record of a person’s credit repayment to a particular company. Credit histories are typically bundled by credit bureaus into credit reports.

 Credit Report: A collection of credit histories organized by date, company, and repayment.  Credit reports are published by credit bureaus and typically cover the last 10 years of a borrower’s life.

 Credit Score: A number given to a borrower to indicate their potential risk to lending institutions. Generally ranging from 350 – 850 (worst to best), credit scores are affected by several factors including: repayment history, age of accounts, debt-to-limit ratios, type of accounts (revolving vs. installment), and derogatory (negative) credit such as judgments, liens, or charge-offs. The lower a borrower’s credit score, the riskier they appear to potential special finance auto lenders. The average score in America is currently around 680. Financing with low credit scores is possible and does not disqualify a borrower from obtaining an auto loan.


Debt-to-Income Ratio: Sometimes referred to as DTI, this is the percentage of a borrower’s debt compared to their total income. For example, if a borrower’s monthly gross (before taxes) income is $2000 and their total monthly debts are $800, their DTI ratio is 40% ($2000 / $800 = .40). The higher a borrower’s DTI, the riskier they appear to a potential lender. 

Default: Failure to repay a credit agreement. Credit defaults can result in auto repossessions, home foreclosures, and bankruptcies. Some companies may seek legal judgments, place liens against property, or garnish a borrower’s wages in order to recover any money owed.

Delinquency: Not paying a credit account on time; a late payment

Depreciation: The gradual decline of a vehicle’s value due to age, condition, and mileage. 

Disclosures: Information given to a borrower about previous damages, repairs or title issues associated with a particular vehicle.

Down Payment: Money given by a borrower to reduce the total loan amount of a vehicle. Down payments are often necessary when dealing with bad credit financing due to a borrower’s poor credit history. The riskier a borrower appears, the larger the down payment required by a special finance auto lender. Though down payments are often necessary, financing with no money down is possible.


Equity: The difference between how much a borrower owes on their vehicle and the vehicle’s value. If a borrower owes less than the value, the borrower has positive equity. If the borrower owes more than the value, the borrower has negative equity. Financing with negative equity is possible and does not disqualify a borrower from obtaining special financing.


Finance Charge: The total amount of interest a borrower will pay over the entire life of a loan. Finance charges are typically higher with bad credit auto loans compared to those charged on traditional loans due to the riskier nature of lending to a borrower with bad credit.


Grace Period: Most loans have a period in which a borrower can pay their debt without incurring a penalty. For example, some lenders allow payments to be made from the 1st day of the month until the 15th day before adding a late charge. Grace periods vary from company to company. It is advisable to check with each company to determine their specific grace period.

Gross Monthly Income: The total monthly income before deducting things like taxes, insurance, alimony payments, or child support. A borrower’s gross monthly income is used to determine their Debt-To-Income ratio (DTI).


Interest: Additional money paid by a borrower on a loan, typically determined by the percentage rate.

Interest Rate:  Rate at which a loan’s interest is repaid, generally expressed as a percentage value of 100. The higher the interest rate, the more money that must be repaid. The lower the interest rate, the less money that must be repaid. Special finance interest rates are typically higher than traditional auto financing due to the riskier nature of lending to borrowers with bad credit.


Joint Account: An account owned by two borrowers that share equal liability. In auto financing, joint accounts occur between borrowers and co-borrowers (co-signers) because the repayment of the auto loan becomes a shared responsibility.  


Lease: Financing a vehicle for short period of time, typically 2-3 years, while a leasing company holds the title of the vehicle. While the required monthly payments are typically much less than a traditional purchase, very strong credit scores are required and very few special finance companies will lease to borrowers bad credit. 

Lien: A legal obligation placed on property to ensure repayment of a loan; auto finance companies place liens against vehicles to ensure auto loans are repaid in a timely manner.

Loan-to-Value Ratio: Alternately known as LTV, this ratio expresses the difference between a loan amount and a vehicle’s value; Example: a vehicle is worth $20,000 and the loan amount is $10,000, the LTV is 50% (loan amount / vehicle value = LTV). When applying for special financing, down payments can affect Loan-to-Value by lowering the total loan amount needed.


Monroney Sticker: The sticker found in every new vehicle for sale. Required by federal law, the Monroney Sticker (named after Senator Mike Monroney) lists identifying information about a vehicle’s specifications, options, emissions, fuel efficiency, as well as the manufacturer’s suggested retail price (MSRP).

MSRP: Manufacturer’s Suggested Retail Price. The recommended selling price from the manufacturer to retail sellers. The MSRP can change depending on additional equipment or services added after the vehicle’s manufacture.


Payment-to-Income Ratio: Alternately referred to as PTI, this ratio determines the income required to repay an auto loan. Most special finance auto lenders will have a predetermined maximum PTI to avoid placing potential borrowers into loans they will have difficulty repaying. 

Poor Credit: Below average credit; Alternately known as bad credit, poor credit is the result of credit bureaus penalizing a borrower’s credit scores due to infractions like late payments, bankruptcies, repossessions, home foreclosures, judgments, and liens. 

Proof of Income: Alternately known as POI, proof of income is evidence of a borrower receiving payment for their employment; this can include recent pay stubs, bank statements, or an employment verification (by phone or fax/email) to prove a borrower’s income.

Proof of Residence: Alternately known as POR, acceptable proof of residence can include utility bills, a letter from the landlord, bank statements showing withdrawal of rent funds, or a current lease agreement.


Refinance: Alternately known as refi, refinancing is the process of securing a different loan on a vehicle, typically with better terms (interest rate, number of months, loan amount, etc.). Refinancing is most common when a borrower’s credit has significantly improved since the time they originally obtained the auto loan.

Repossession:  Reclaiming of a vehicle by a bank or finance company when a borrower defaults on an auto loan and shows no indications of repaying the debt; While repossessions are viewed very seriously by potential lenders, financing with repossessions is possible and does not necessarily disqualify borrowers from achieving special financing.


Sticker Price: Alternately known as Manufacturer’s Suggested Retail Price or MSRP; Also sometimes referred to as the “list price.”

Stips: Shortened form or slang term for “stipulations,” stips are requirements made by a lenders to authorize the funding of a loan. Typically, these requirements are documents such  as letters of explanation (LOX), proof of income (POI), proof of residence (POR), bankruptcy discharge, or alimony/child support documents. 


Term: The amount of time given by a auto finance company to repay a loan (ex. 4 year term or 48 month term).

Title: Also known as Certificate of Title, this is the paperwork that documents the legal ownership of a specific vehicle. A “clean” or “clear” title denotes that there are no liens against the vehicle; “cloudy” or “encumbered” title denotes there may be active liens attached to the vehicle.

Trade-in Value:  The value of a borrower’s vehicle if sold to a dealership, not a private party; trade-in value is generally much lower than private party value due to the dealership’s cost of repairs and reconditioning that must be made in order to resell the vehicle and still make a profit. 


Upside-down: Alternately known as “under water,” this term refers to when a borrower owes more than the current value of their vehicle. Example: Borrower owes $10,000. Vehicle is worth $8,000 = borrower is $2,000 upside-down.


Verification of Deposit: Alternately known as VOD, this is a written verification of a borrower’s down payment funds, typically completed by the banking institution from which the money will be drawn.

Verification of Insurance: Alternately known as VOI, this is a written verification of a borrower’s insurance, typically completed by the borrower’s insurance agent or their representative.

Verification of Employment: Alternately known as VOE, this is a verbal or written verification of a borrower’s employment status, typically completed by the employer’s Human Resources (HR) department.

Verification of Rent: Alternately known as VOR, this is a written verification of a borrower’s rental history, typically completed by the rental company’s manager or corporate office.